LEO: Trust Accounts: Lawyer/Limited Partner  LE Op. 1263

 

Trust Accounts: Lawyer/Limited Partner Disbursing from Law

Firm's Escrow Accounts; Self-Reporting Requirement.

 

August 3, 1989

 

You have asked the Committee to consider the propriety of a lawyer

disbursing money from an escrow account for his personal business under

the following set of facts. There are several law firm escrow accounts

which exist for various investment partnerships into which funds are paid

for the benefit of the several investment partners, one of whom is also

counsel and performs the legal work for the partnership. Funds are paid

into the account for the benefit of the lawyer/limited partner. You have

inquired if it would be ethically permissible for the lawyer to disburse

money earmarked for him directly to those with whom he is conducting

personal business or must the money first be disbursed to the

lawyer/partner who may then pay his personal obligations out of his own

personal account.

 

The Committee will assume that none of the partners in the various

investment partnerships referred to in the inquiry consist of partners who

are also clients of the law firm. Thus, the general prohibition against

entering into a business transaction with a client where the lawyer and

client have differing interests, and the client expects the lawyer to

exercise his professional judgment therein for the client's protection, is

not a consideration.

 

The appropriate and controlling Disciplinary Rule relative to your

inquiry is DR:9-102(A)(2) which provides that the funds belonging in

part to a client and in part presently or potentially to the lawyer may be

withdrawn when due unless the right of the lawyer to receive it is

disputed by the client, in which event the disputed portion shall not be

withdrawn until the dispute is finally resolved. The Committee believes

that it would be improper for a lawyer/limited partner to leave any

portion of his share of the proceeds in the trust account for future draw

downs since to do so would result in commingling of personal funds with

trust account funds. Also, since no funds belonging to a lawyer or law

firm shall be deposited in the client's trust account except those funds

reasonably sufficient to pay bank charges, it is the Committee's view that

when the transaction is completed, all funds related to that transaction

must be disbursed promptly to avoid any misappropriation of the same. (See

 DR:9-101(A)(1))

 

The second part of the inquiry, that which was formerly LE Op. 1263,

has been incorporated in this response as it is substantially related.

Since there is no self-reporting requirement in DR:1-103, the Committee

opines that the duty to report the commingling or misappropriation of

funds held in the law firm's escrow account must be left with the attorney

having knowledge of the same; if steps have been taken to rectify this

situation, then the attorney must decide if the prior violation raised a

substantial question as to another lawyer's fitness to practice law. If

that determination is in the affirmative, then reporting the violation is

the appropriate action. (See LE Op. 977)

 

Committee Opinion August 3, 1989